Debt hit banks must be prudent with dividends

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For example, Ho Chi Minh City-based DaiA Bank just achieved 45 per cent of its profit target in 2012.

Amid rising bad debts, the bank has yet to unveil any plan for 2012 dividend payment despite an initially proposed 12 per cent payout rate.

This year, DaiA Bank proposes paying shareholders 10 per cent dividend rate.

Southern Bank and Mekong Bank also offered low dividend rates in 2012.

Southern Bank recently approved 2.1 per cent dividend rate in 2012 for shareholders while payout rate was set at 2.5 per cent at Mekong Bank, only one-firth of the bank’s initial plan.

This year, these banks have set a bit higher dividend rates.

One top Ho Chi Minh City small bank executive admitted banks could hardly reach their profit targets this year amid the current tough business climate.

“Our bank just caught 1 per cent credit growth in the first five months against 9 per cent full-year target, while facing growing bad debt threat, making dividend payment extremely hard,” said the executive.

Orient Commercial Joint Stock Bank chairman Trinh Van Tuan assumed banks adopting low payout rates or leaving it an open question was understandable as banks were facing growing challenges to hike credit growth and settle bad debts.

“It is more important for banks to reduce operation risks,” Tuan noted.

Orient Commercial’s profits in 2012 before making provisions were more than VND500 billion ($24 million), reaching its plan.

The bank, however, needed to put a big sum into provision, so its 2012 profits fell to more than VND300 billion ($14.3 million) only.

This year, Orient Commercial set its profits tantamount to last year’s level at VND320 billion ($15.2 million) after deducting provision.

Hiking bad debts with associated bigger provisions have eaten into banks’ profits. This, in return, made it impossible for banks to offer attractive dividend rates.

In fact, payout rates of many banks were less than half of current mobilising cap 7.5 per cent, per year.

While most small banks leave their dividend payment an open question, bigger banks significantly slashed payout rates, arguing they needed to put more in provisioning.

At its recent general shareholders meeting, DongA Bank had approved to scale down payout rate in 2012 from 15 per cent to 10 per cent.

The bank had yet to have a final decision on 2013 dividend rate, according to its general director Tran Phuong Binh.